Free Shipping Helps Deliver Happy Holidays for E-Commerce

Even as companies bemoan the 2002 holidays as the worst in three decades for store-based retail, early indications show that this was another strong season for e-commerce.

Consumers spent $7.92 billion from Nov. 25 to Dec. 25, up 23 percent from that period last year, according to comparison-shopping service BizRate.com. This increase came despite six fewer shopping days in the 2002 holiday season vs. 2001.

"There's no question that shipping promotions drove success this holiday season," said Scott Silverman, executive director of Shop.org, a trade body for online retailers. "They couldn't have a more crystal-clear understanding of consumer desires: not to pay shipping costs."

A tough economy forced a bevy of retailers to offer free shipping deals. Amazon kicked in for purchases over $25, and Barnes & Noble.com offered free shipping for two or more items shipped together. Fragrance retailer Sephora had a $75 minimum for free shipping and gift-wrapping.

L.L. Bean temporarily restored unconditional free shipping to all catalog and Web site customers 11 years after it stopped that practice. The holiday sweetener helped contribute to an increase of 50 percent in online orders and 20 percent in telephone orders Dec. 1 over the same day last year.

But some direct marketers, such as Fairytale Brownies and Sharper Image, attributed robust holiday performance to factors other than promotions and free shipping.

Fairytale Brownies said its November and December sales rose 5 percent and 34 percent, respectively, over year-ago periods.

"Things that contributed to our growth were increased mail circulation, our first time to do a mail drop in December, e-mail marketing, publicity, Food Network FoodFinds TV airing and outbound calls to our best customers," said Eileen Joy Spitalny, co-founder and president of the Chandler, AZ, firm.

The San Francisco electronics seller said total sales for the first 24 days of December rose 28 percent to $111 million from a year ago. November sales rose 33 percent to $56.8 million from that month last year.

"It is remarkable to have achieved these sales increases without the heavy discounting that seems so prevalent among other retailers [in 2002]," Sharper Image chairman/CEO Richard Thalheimer said in a statement.

Sharper Image, however, was in a minority on that issue. Most major retailers had to offer shipping promotions and deep discounts to lure customers online in an economy bedeviled by weakness, job losses and fears of terrorism and war.

Amazon, for example, gleefully said it had closed its busiest holiday season to date with more than 56 million items shipped from Nov. 1 to Dec. 23. But it acknowledged free shipping's role.

The Seattle retailer said the largest sales day was Monday, Dec. 9, with 1.7 million items ordered. The second-largest sales day was Dec. 11 - a day before the holiday ordering deadline for its Free Super Saver Shipping promotion ended.

To make up for the fewer days between this Thanksgiving and Christmas, companies like Amazon extended delivery deadlines to give last-minute shoppers eight extra days for free shipping. Amazon's free shipping offer this time ended Dec. 12 vs. Dec. 4 in 2001.

BizRate estimates that 2002 fourth-quarter sales were up 40 percent to $17.4 billion from $12.4 billion in 2001. And 2002 online sales rose 34 percent to $47.98 billion from $35.87 billion in 2001. The 2001 number itself was a 24 percent jump from 1999 online sales of $28.91 billion.

"The industry is in a second inflection point," said Chuck Davis, CEO of BizRate, Marina del Rey, CA. "The industry grew quickly and subsided during the recession and tech crash, and now it's back on its fast-growth path. It's almost doubled its size in two years."

BizRate said there were 358.6 million purchases made online in 2002, up 37 percent from 261.7 million orders last year.

The growth in fourth-quarter sales also was driven by the number of orders executed online: 127.3 million vs. 85.3 million in the same period of 2001, a 49 percent jump. But while volume was up, the average purchase price was down by 6 percent, from $146 in the fourth quarter of 2001 to $137 in the last fourth quarter.

Popular this holiday season were computers, hardware, electronics, entertainment items, apparel, toys and games, according to BizRate.com.

It also is clear that more women than men now shop online, mirroring an offline pattern. Women are part of a troika, along with perceptions of value and convenience, propelling e-commerce's rapid growth.

"Retailers provided more products that women bought [in 2002], not just electronics and computers, which was the main fare four years ago," Davis said.

Still, consumers continue to expect a serious incentive to entrust their shopping dollars online. And for all the excitement over free shipping in holidays past, few realize that it may have been a game of bait-and-switch.

Though 39 percent of purchases in the 2002 holiday season were influenced by free shipping offers, only 9.3 percent of orders actually bore a "no-shipping" fee, BizRate research found. Further, the average shipping charge this holiday season rose to $11.70, up 14.8 percent from $10.19 in 2001.

"So the retailers had a double win - they got a record number of consumers to visit them, and they were able to increase shipping charges year over year," Davis said. "So we should expect for next year more free shipping and more conditions - weight, time or dollar value."

How long before consumers cotton onto the scheme?

"I think consumers will learn that there's fine print to free shipping," he said. "But for this past holiday, free shipping was the great equalizer with the offline channel because the surcharge for ordering online evaporated."

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